 Course Name: Operations Management

 Course code: MGT 411

 Reference books:
 1. Operations Management, by
Krajewski/Ritzman/Malhotra
 2. Production and Operations Management by
S.Anil kumar and S. Suresh

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 COMPETING WITH
OPERATIONS

For Operations Management, by

Krajewski/Ritzman/Malhotra
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Operations Management

According to Krajewski / Ritzman / Malhotra:

 Operations Management the direction and control
of the process that transform inputs into products
and services.
 The systematic design, direction, and control of
processes that transform inputs into services and
products for internals, as well as external,
customers
 Processes can be linked together to form a supply
chain – interrelated processes within a firms and
across different firms that produce a service or
product to the satisfaction of the customers

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According to S. Anil Kumar and N. Suresh:
Operations management is the process, which combines and
transforms various resources used in the operations
subsystem of the organization into value added
product/services in a controlled manner as per the
policies of the organization.
Therefore, it is that part of an organization, which is
concerned with the transformation of a range of inputs into
the required (products/services) having the requisite
quality level.

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 Process:
Any activity or group of activities that takes one or
more inputs, transforms and adds value to them, and
provides one or more outputs for its customers.

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Across the Organization
Finance
Acquires financial
resources and capital
for inputs

Material & Sales

Service Inputs Revenue

Support Functions
• Accounting
• Information Systems
• Human Resources
Operations • Engineering Marketing
Translates Generates sales
materials and of outputs
service into
outputs
Product &
Figure 1.1 Service Outputs
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A Process View
External environment

Internal and external

customers

Inputs Outputs
Processes and
• Workers operations • Goods
• Managers • Services
• Equipment 1 3
• Facilities
5
• Materials
• Land 2 4
• Energy

Information on
performance

Figure 1.2

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A Process View
Continuum of characteristics of manufacturing and service organizations

More like a More like a

manufacturing service
process process

• Physical, durable output • Intangible, perishable output

• Output can be inventoried • Output cannot be inventoried
• Low customer contact • High customer contact
• Long response time • Short response time
• Capital intensive • Labor intensive
• Quality easily measured • Quality not easily measured

Figure 1.3
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The Supply Chain View

Support Processes

New
Customer

External customers
service/
External suppliers

product relationship
development management

Supplier Order
relationship fulfillment
process process

Figure 1.4

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The Supply Chain View

 Core processes are sets of activities that

deliver value to external customers
1. Supplier relationship process
2. New service/product development process
3. Order fulfillment process
4. Customer relationship process
 Support processes provide vital
resources and inputs to the core
processes

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Job shops production
Job shops are typically small manufacturing systems that handle job
production, that is, custom/bespoke or semi-custom/bespoke manufacturing
processes such as small to medium-size customer orders or batch jobs

-A typical example would be a machine shop, which may make parts for
local industrial machinery, farm machinery and implements, boats and
ships, or even batches of specialized components for the aircraft
industry. continuous flow manufactures such as textile, steel, food
manufacturing and manual labor.

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Batch production

Batch production occurs when many similar items are produced together.
Each batch goes through one stage of the production process before moving
onto next stage. Good examples include:
Cricket bat manufacture
Baking / meal preparation
Clothing production

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 Some common continuous processes are the following:
•Oil refining
•Chemicals
•Synthetic fibers
•Fertilizers
•Pulp and paper
•Blast furnace (iron)
•Metal smelting
•Power stations
•Natural gas processing
•Sanitary waste water treatment
•Continuous casting of steel
•Rotary kilns for calcining lime or cement
•Float glass

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Scope of operations management

1. Product design: product design and development provides link between

marketing, customer needs and expectations and the activities required to
manufacture the product.
2. Process design: an overall process route for converting the raw materials
in finished goods.
3. Production planning and control: the process of planning the production
in advance, setting the exact route of each item, fixing the starting and
finishing dates for each item, to give production orders and follow up the
progress of products according to orders.

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4.Planning: Planning is deciding in advance what to do, how to do it,
when to do it and who is to do it.
5.Routing ( direction-finding): selection of path which each part of
the product will follow, which being transformed from raw materials
to finished products.
6.Scheduling: the fixation of time and date for each operation.
7.Dispatching: release of orders and instruction for the starting of
production for any item in acceptance with the route sheet and
schedule charts.
8.Quality control: a system that is used to maintain a desired level of
quality in a product or service.
9.Materials management:
10.Maintenance management

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Productivity Improvement
EXAMPLE 1.1
Calculate the productivity for the following operations:

a. Three employees process 600 insurance policies in a week.

They work 8 hours per day, 5 days per week.

SOLUTION
Policies processed
a. Labor productivity =
Employee hours

600 policies
= = 5 policies/hour
(3 employees)(40 hours/employee)

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Productivity Improvement
EXAMPLE 1.1
Calculate the productivity for the following operations:

b. A team of workers makes 400 units of a product, which is

sold in the market for $10 each. The accounting department
reports that for this job the actual costs are $400 for labor,
$1,000 for materials, and $300 for overhead.

SOLUTION
Value of output
a. Multifactor productivity =
Labor cost + Materials cost
+ Overhead cost

(400 units)($10/unit) $4,000

= = = 2.35
$400 + $1,000 + $300 $1,700

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Application
This Year Last Year Year Before Last
Factory unit sales ($) 2,762,103 2,475,738 2,175,447
Employment (hrs) 112,000 113,000 115,00
Sales of manufactured $49,363 $40,831 —
products ($)
Total manufacturing $39,000 $33,000 —
cost of sales ($)

 Calculate the year-to-date labor productivity:

This Year Last Year Year Before Last
factory unit sales 2,762,103 2,475,738 2,175,447
= 24.66/hr = 21.91/hr = $18.91/hr
employment 112,000 113,000 115,000

 Calculate the multifactor productivity:

This Year Last Year
sales of mfg products $49,363 $40,831
= 1.27 = 1.24
total mfg cost $39,000 $33,000

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Solved Problem 1

Student tuition at Boehring University is $150 per semester

credit hour. The state supplements school revenue by $100 per
semester credit hour. Average class size for a typical 3-credit
course is 50 students. Labor costs are $4,000 per class,
material costs are $20 per student per class, and overhead
costs are $25,000 per class.

a. What is the multifactor productivity ratio for this course

process?
b. If instructors work an average of 14 hours per week for 16
weeks for each 3-credit class of 50 students, what is the
labor productivity ratio?

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Solved Problem 1
SOLUTION

a. Multifactor productivity is the ratio of the value of output to

the value of input resources.
$150 tuition +
50 student 3 credit hours $100 state support
Value of output =
class student credit hour

= $37,500/class

Value of inputs = Labor + Materials + Overhead

= $4,000 + ($20/student  50 students/class) + $25,000
= $30,000/class

Output $37,500/class
Multifactor productivity = = = 1.25
Input $30,000/class

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Solved Problem 1
SOLUTION

b. Labor productivity is the ratio of the value of output to

labor hours. The value of output is the same as in part (a),
or $45,000, so

14 hours 16 weeks
Labor hours of input =
week class

= 224 hours/class

Output $45,000/class
Labor productivity = =
Input 224 hours/class

= $200.89/hour

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Solved Problem 2

Natalie Attire makes fashionable garments. During a particular

week employees worked 360 hours to produce a batch of 132
garments, of which 52 were “seconds” (meaning that they were
flawed(defective)). Seconds are sold for $90 each at Attire’s
Factory Outlet Store. The remaining 80 garments are sold to
retail distribution at $200 each. What is the labor productivity
ratio of this manufacturing process?

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Solved Problem 2

SOLUTION

Value of output = (52 defective  90/defective)

+ (80 garments  200/garment)

= $20,680

Labor hours of input = 360 hours

Output $20,680
Labor productivity = =
Input 360 hours

= $57.44 in sales per hour

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